1st Module

Operation Management
What is Operation Management?

- Operations management is the set of activities that

creates the value in the form of goods & services by
transforming inputs into outputs.

- The business function responsible for planning,

coordinating, and controlling the resources needed
to produce products and services for a company.

-Production- The creation of goods & services.

OM is meant for Organizing To Produce Goods &
Services

-To create goods & services all organisations perform three

functions. These functions are not only important to survival
but also for an organisational survival.
1. Marketing, which generates the demand , or at least takes
the order for a product or service

2. Production/ operations, which creates the product.

3. Finance/ Accounting, which tracks how well the organisation

is doing, pays the bills & collects the money.
 Organisation Chart

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 Operations Management is:
-A management function
-An organization’s core function
-In every organization whether Service or
Manufacturing, --profit or Not for profit
OM means -

Input

Transformati
on

Output
Why to Study OM:

1. OM is one of the three major functions of any

organisation, & it is integrally related to all the other
business functions.

2. To know how goods & services are produced.

3. To understand what operations managers do.

4. To know costly part of an organisation.

What Operations Managers DO?

- Planning- capacity, location, products & services

- Organising- degree of centralisation, subcontracting

- Staffing- Hiring/laying off of employees

- Leading- incentive plans, issue of work orders, job

assignments.

- Controlling- inventory control, quality control, cost

control…….
OM transforms:
-To add value
-Increase product value at each stage
-Value added is the net increase between output
product value and input material value
-Provide an efficient transformation
Efficiency – means performing activities well for least
possible cost
-Systematic direction, control, and evaluation of
the entire range of processes that transform inputs
into finished goods or services.

-Environmental factors-culture, political, and

market influences

-Inputs-HR, capital, materials, land, energy,

information, customer

-Transformations-convert inputs into outputs

-Outputs-goods or services, and waste
Customer Contact-customers actively participate
in transformation processes, self-service

-Performance Feedback-repair records,

customer comments
Operations Management Concepts
◦ Quality: goods and services that are reliable and
perform correctly.
 Quality allows customers to receive the performance that
they expect.
◦ Efficiency: the amount of input to produce a given
output.
 Less input required lowers cost and waste.
◦ Responsiveness to customers: actions taken to
respond to customer needs.
 Firm can react quickly and correctly to customer needs as
they arise.
- Om transforms inputs into Output(Goods &
Services)

Services Goods
-Intangible product -Tangible product
-Product cannot be inventoried -Product can be inventoried
-High customer contact -Low customer contact
-Short response time -Longer response time
-Labor intensive
-Capital intensive
-Revenue is generated through
Capital
-Revenue is generated through
- Many aspects of quality are Labour
difficult to measure -Some aspects of quality are
- Product is transportable measurable
-Product can be resold -Provider not product is often
transportable
-Reselling a service is unusual
 Cont……….
-Both use technology
-Both have quality, productivity, & response issues
-Both must forecast demand
-Both will have capacity, layout, and location issues
-Both have customers, suppliers, scheduling and staffing
issues
-Manufacturing often provides services
-Services often provides tangible goods
 Cont………….
-OM has the most diverse organizational function
-Manages the transformation process
-OM has many faces and names such as;
V. P. operations, Director of supply chains, Manufacturing
manager, Plant manger, Quality specialists, etc.
-All business functions need information from OM in
order to perform their tasks
Today’s OM Environment

-Customers demand better quality, greater speed, and

lower costs

-Companies implementing lean system concepts – a

total systems approach to efficient operations

-Recognized need to better manage information using

ERP(Enterprise Resource Planning) and CRM (
Customer Relationship Management))systems.

-Increased cross-functional decision making

Exciting New Trends in OM:

1.Global Focus
2. Just-in- time
3. Supply- chain Partnering
4. Rapid product development
5. Mass
Ten decisions areas of Operations Management:

1. Managing quality
2. Design of goods & services (product design)
3. Process Strategy( process design)
4. Location Strategy
5. Layout Strategy
6. Human resource Strategy
7. Supply- chain management
8. Inventory Management
9. Scheduling
10. Maintenance
What is a Product ?

-It is anything that can be offered to a market for attention, acquisition,

use or consumption & that might satisfy a want or a need.

Levels of Product: Product planners need to think about products &

services in three levels.

i. Core products
ii. Actual products
iii. Augmented products

- A product can be classified into

i. Consumer product
ii. Industrial product
 Augmented Actual Product
Product

Installation Core
Product

Packaging
Brand name After
Core
Features PP sales
Benefits
services
or
Services
Quality
level Design

Warranty

Levels of Product
 – Product Strategies
-A product is anything that can be offered to a market/society that
might satisfy a want or need
-A product generally comes out as an end material or consumable or
even final usage material
-Commodities  Raw material  Process  Products  waste 
Product for some other usage
-Consumer goods are designed to the specifications and needs of
customers.
-Product strategy emphasizes on uniqueness, dependability of
delivery on time, quality, and flexibility to change the production
process.
-Cost is lesser consideration in product strategy
-Product Strategy: It includes product decisions regarding product
attributes.

- Further a firm may offer to the market

i. Single Product

ii. Product Line

iii. Product - Mix

iv Diverse Products
 Product Line

Sample of Crude Cylinders of Liquifi Gasoline

oil(petroleum) ed petroleum gas

Sulphur Motor oil

Kerosene Diesel fuel

Other Examples;Fertilizer, Linoleum, Perfume, Insecticide, Petroleum

Jelly, Soap, Vitamin Capsules.
-5 P’s for a Production Management or for Operation Manager:

1. The product

-As per the product policy of an there will be agreement is reached

between the various functions on the following aspects of a product.

i. Performance
ii. Quality & reliability
iii. Aesthetics & ergonomics
iv. Quality & selling price
v. Delivery schedule
2. The plant:
-The plant accounts for fixed asset
-The plant should match the needs of the product; market, the worker
& the organisation.

-Plant is concerned with;

a .Design & layout of building & offices
b. Reliability, perfect, maintenance of equipments
c. Safety of operations
d. The financial constraint
3. The process:

- There are number of alternatives to come out with a product, but it is

required to select one best method which attains the objectives.
-To decide a particular process it is important to examine the following
factors:.
i. Availability of capacity
ii. Manpower skills available
iii. Type of production
iv. Layout of plant
v. Safety
vi. Maintenance required
vii. Manufacturing cost
 4.The programme:
- It means the time table of the production.
- It prepares schedules for
i. Purchasing
ii. Transforming
iii. Maintenance
iv. Cash
v. Storage & transport

5. People:
- Production depends on people
- The production manager should be involved in issues like
i. Wages
ii. Conditions of work/safety
iii. Motivation
iv. Training of employees

The areas of 5 Ps will be overlapping in production management.

Production System Components

G.Dessler, 2003

May 18, 2006 LIS580- Spring 2006 32

What is Product Planning & Development?

- Product planning & development is a process of searching

ideas for new products, screening them systematically, converting
them into tangible goods, & introducing to the market as a new
product.

- This includes product designs, & product engineering

- PPD includes all the activities starting from the concept of

product ideas & ending up with full scale production &
introducing new product to the target market.
Required Inputs to the Production Planning & Development
System
What is a New Product?

i. Products that are really innovative. Which are truly unique (

Cellular phones, palm- top computers)

ii. Replacement that are significantly different from the existing

products ( wall television, electric car, compact disc players)

iii. Imitative products ( new versions of chocolates, cereals, new

models of automobiles)
Objectives of Product Planning & Development:

- To facilitate profitability & growth of business

- To meet the ever changing needs of the customers & achieve
maximum possible customer satisfaction
- To enable the firm to face competitive pressures & to diversify risks.
- To minimize cost of production & to maximize the sales

Further a product planning & development may be classified as

follows:

i. Immediate objectives are for short terms

ii. Ultimate objectives are long-term such as

a. To create a favorable product image & brand image

b. To position the product favorably in the customers mind
c. T create brand loyal customers & increase market share,
d. To diversify business risks
e. To increase sales turnover &
f. To become a market leader by ‘’ Product innovation”.
Why Product planning & Development is important?
i. New products hold the answer to most organizations biggest
problems

ii. Competitors are most threatening

a. there is so little product differentiation that price cuttings takes
everyone's margin away.
b. when they have a desirable new item which we don’t have.

iii. Profits & sales will diminish when customers no longer prefer our
products over the competitors products.

Iv. All successful new products do more good to an organisation the

anything else that can happen.
V. To be competitive, what we offer to our customers must be better
than what someone else offers.
Vi. Business firms can expect & get a higher percentage of their sales &
profits from new products.

Vii. Because of severe competitions, management are under pressure

to adapt value

viii. These concepts are important to an organisational success.

Ix. Product innovations have two significant implications-

a. Every company's products eventually becomes obsolete as their
sales volume & market share are reduced by changing consumer
desires or superior competing products &
b. As a product ages through its life cycle, its profits generally decline &
introducing a new product at the right time can help maintain a
company's profits.

x. A guide line for management is : “innovative or perish”

-Features of Successful Product Development:

i. Product quality- Does the product satisfy customer needs?

ii. Product cost- It determines the per unit profit for a particular
sales volume & selling price

iii. Development Time- How quickly did the team complete

product development effort?

iv. Development cost- How much a firm has invested develop a

product?

v. Development capability: Whether a firm by using these ideas

can they come up with good products in mere future?
 Products in Various Stages of Life
Cycle
Sales
& Maturity
Growth
Profit Decline
s
Introduction

PDS

Losses
&
investme Time
nts
1. Product Development Stage

2.Introduction

-Fine tuning
-research
-product development
-process modification and enhancement
-supplier development. Eg- Holographic projections.

2. Growth
-Product design begins to stabilize
-Effective forecasting of capacity becomes necessary
-Adding or enhancing capacity may be necessary
- Increase in profits due to huge sales Eg- Amazon the bane of
bussiness.
3. Maturity

-Competitors now established

-High volume, innovative production may be needed
-Improved cost control, reduction in options, paring
down of product line. Solar panels.

4. Decline
-Unless product makes a special contribution, must
plan to terminate offering
- It is a period when there is no sales & profits drop.Eg-
Fidget spinners.
Productive System Types

The production activities are classified to the volume of

production (quantity) & product standardization.

1. Continuous Flow

- Characterized by high production volume & high degree of

product standardization
-Processes are highly standardized
-High degree of automation
-Little use for skilled work force
-Cost are generally low because of high volume

-Some examples of process industries are as follows ; steel,

ores, gases , chemicals, petroleum products, rubber paint, paper
processing etc........
 Continuous Flow

Input
OP Information & Control Decision Maker
1

Storage1
OP
2

Storage2
OP OP OP
Ex. Bottling Plant
3 4 5

Out put
2.Mass or assembly line

-Manufacture of discrete parts or assemblies using a continuous

process are called Mass production or Repetitive production

-An assembly line is a type of production line that produces an

assembly of parts and components. At each step, parts or
components are added bringing the product closer to being fully
assembled.

Features:
-High volume of production
- Small variety of different products
-extent of supervision required is very less
- Material handling is fully automated
- automobile assembly line is typical example of mass production.
-Production planning & control is very easy.
3. Batch or intermittent:

The common practice of using the same production line to

produce different types of goods.

The practice of stopping and restarting a production line in

response to market conditions.

-Used for producing small lots of similar products

- Products are made in short batches with short production
runs
-Differs from mass production in the materials used,
machine setups & layouts.
-Shorter production runs
-Plant & machineries are fixed
 INTERMITTENT SYSTEM

OP Information & Control Decision Maker

1

Storage1
OP
2
Storage 2 Storage 4
OP
4

Storage 3
OP Storage 5
3

Ex. Paper cutting machine

4.Job Shop:

-Produce a wide variety small quantity of specialized products

-Products are customized
-May be produced by different sequences of operations
-General purpose equipment is used
-Labor force must be highly skilled
A typical example would be a machine shop, which may make
parts for local industrial machinery, farm machinery and
implements, boats and ships, or even batches of specialized
components for the aircraft industry.
5. Project:

-One in which a unique & unusually & large &

complex items are produced
-Products are fixed at assembled positioning
-Components & subassemblies must be brought to
the location
 Examples of 4 basic type production Systems

System Example

Job Shop Commercial Printer

Batch Processing Heavy Equipment

Flow Shop (Production Line) Car Assembly

Continuous Flow Sugar Refinery

Most Processes are some where between Job shop and

Flow shop
51
Comparisons…
Job production Batch production
1) Raw materials, processes, sequences 1) Normally not standardized.
normally standardized. 2) Product variety is high.
2) Product variety is low. 3) Low volume production.
3) High volume production. 4) Production as per customer demand.
4) Production takes place in anticipation of 5) Cost of production/ unit is high.
customer demand. 6) Equipment is general purpose
5) Cost of production/unit is low
6) Equipment is special purpose.

Flow production Process production

1) Emphasis is on product. 1) Emphasis is on process
2) Product layout is preferred. 2) Process layout is preferred.
3) Automation is possible. 3) Automation is difficult.
4) Less floor space. 4) Larger floor space.
5) Not easy to change product line. 5) Accommodates changes in product
line.
 Impact of technology & organisation of the operations
function

-The appeal of the whole information technology arena is that it is

designed to make people and organizations more knowledgeable,
efficient, and/or profitable

-Some examples of how information technology has been implemented

in some specific cases in industries such as aerospace, computers, oil and
gas, railroad, and manufacturing.

-More specifically, information technology can be linked to changes in

factors such as job design, physical layout or location, supervisory
relationships and autonomy, cooperation inside and outside the
organization, and formation of work teams. One futuristic idea whose
time has come is the notion of the virtual
1. Wearables
(Image courtesy of Edgewood Chemical Biological Center / U.S. Army.)
-Getting reliable and up-to-date information on the battlefield is crucial, and being able to monitor a
soldier’s condition can prevent avoidable injuries.
-Both needs can be satisfied via wearables, such as heads-up-displays (HUDs) and smart tattoos that
monitor vital signs. Wearables are also useful in the factory, where head-mounted displays and smart
glasses can be used in maintenance and assembly applications.
2.Cloud Computing

While potential applications in the defense industry range from integrating

logistics into wearable tech to analyzing big data from Army installations around
the world, it's in aerospace that cloud computing is making the biggest waves.
3.Better Batteries

The F-35 JSF uses a Li-ion battery as a backup. (Image courtesy of U.S.
Army.)
Battery technology is always improving, with lithium-ion batteries now a
mainstay in electronics after their commercial release in 1991. In addition
to powering electric vehicles, these high capacity, mostly
reliable batteries are being utilized in defense and aerospace
applications as systems backups for a variety of aircraft, including the F-
35 fighter and both Boeing and Airbus jets.
2. Specialized Imaging
THz Imaging may seem invasive, but it could be a matter of life and death. (Image courtesy
of Science.)
From autonomous aircraft to Terahertz (THz) imaging, many industries can benefit from
advanced visual imaging technology.
Whether it’s military or security personnel identifying concealed weapons, or advanced flight
systems to assist human or
autonomous pilots, the technology is finding its way into a range of applications.
THz imaging also has additional applications in manufacturing, such as non-destructive
testing.
-One futuristic idea whose time has come is the notion of the virtual
workplace. This concept is based on the idea of employees being able to
work independently as a result of having access to information. One article
proposes "the virtual workplace provides access to information you need to
do your job anytime, anyplace, anywhere. . . employees do not have to be
tied to their offices to do their jobs
Examples of information technology applied to new products
and processes include:

- Integration of operations functions within a hotel customer

services within a hotel (billing from the customer's room, etc.)

- Use of information technology by drug wholesalers to gather

inventory/ordering information from drugstores and to develop
billing order picking, and shipping information

- Use of small, special purpose computers to monitor

performance and troubleshoot automobiles systems

- Use of satellite-based navigation and off course warning

systems for large oil tankers operating in high-traffic waters.
Forecasting
- It is the art & science of predicting the future events.

- Forecasting is based on historical data & it requires statisticl &

management science techniques

- Usually forecasting is a combination of predictions.

Need of Forecasting:
- Majority of the activities of the industries depends upon the
future sales.

- Projected demand for the future assists in decision making with

respect to make investment in plant & machinery , market
planning & programmes

- To schedule the production activity to ensure optimum

utilisation of plant's capacity.
-To prepare material planning which should be available at right
quantity & right time.
-Forecasting is going to provide a future trend which is very much
essential for product design & development.

Types of Forecasts by Time Horizon

i. Short-range forecast
- Up to 1 year; usually less than 3 months
-Job scheduling, worker assignments

ii. Medium-range forecast

-3 months to 3 years
-Sales & production planning, budgeting

iii. Long-range forecast

-3+ years
- New product planning, facility location
 Types of forecasting methods

1.Qualitative methods 2.Quantitative methods

Rely on subjective Rely on data and

opinions from one or analytical
more experts. techniques.
Forecasting Approaches

-Qualitative Methods( Subjective Methods)

Used when situation is vague and little data exist

New products

New technology

Involves intuition, experience

e.g., forecasting sales on Internet

Quantitative Methods

Used when situation is ‘stable’ and historical data

exist

Existing products

Current technology

Involves mathematical techniques

e.g., forecasting sales of color televisions

Seven Steps in Forecasting

-Determine the use of the forecast

-Select the items to be forecasted

-Determine the time horizon of the forecast

-Select the forecasting model(s)

-Gather the data

-Make the forecast

-Validate and implement results

Overview of Qualitative Methods

Jury of executive opinion

Pool opinions of high-level experts, sometimes

augment by statistical models

Delphi method

Panel of experts, queried iteratively

1.Jury of Executive Opinion

Involves small group of high-level experts and

managers

Group estimates demand by working together

Combines managerial experience with statistical

models

Relatively quick

‘Group-think’ disadvantage
2.Sales Force Composite

Each salesperson projects his or her sales

Combined at district and national levels

Sales reps know customers’ wants

Tends to be overly optimistic

3. Delphi Technique A method to obtain a consensus
forecast by using opinions from a group of “experts” expert
opinion , consulting salespersons, consulting consumers .
 4.Consumer Market Survey

Ask customers about purchasing plans

What consumers say, and what they actually do

are often different

Sometimes difficult to answer

II. Quantitative Technquies
1.Time Series Forecasting

Set of evenly spaced numerical data

Obtained by observing response variable at

regular time periods

Forecast based only on past values, no

other variables important

Assumes that factors influencing past and

present will continue influence in future
Time Series Forecasting

Set of evenly spaced numerical data

Obtained by observing response variable at

regular time periods

Forecast based only on past values, no other

variables important

Assumes that factors influencing past and present

will continue influence in future
 Components of Demand
Trend
component
Seasonal peaks
Demand for product or service

Actual
demand

Average
demand over
Random four years
variation
| | | |
1 2 3 4
Year Figure 4.1
For example, measuring the value of retail sales
each month of the year would comprise a time
series. ... An observed time series can be
decomposed into three components:
the trend (long term direction), the seasonal
(systematic, calendar related movements) and
the irregular (unsystematic, short term
fluctuations).
Trend Component ( T)
 Persistent, overall upward or
downward pattern
 Changes due to population,
technology, age, culture, etc.
 Typically several years duration
 Seasonal Component (S)

 Regular pattern of up and down

fluctuations
 Due to weather, customs, etc.
 Occurs within a single year
Number of
Period Length Seasons
Week Day 7
Month Week 4-4.5
Month Day 28-31
Year Quarter 4
Year Month 12
Year Week 52
A seasonal pattern exists when a series is
influenced by seasonal factors (e.g., the
quarter of the year, the month, or day of the
week). Seasonality is always of a fixed and
known period. A cyclic pattern exists when data
exhibit rises and falls that are not of fixed
period.
 Cyclical Component (c)

 Repeating up and down movements

 Affected by business cycle, political, and
economic factors
 Multiple years duration
 Often causal or
associative
relationships

0 5 10 15 20
If the fluctuations are not of fixed period then
they are cyclic; if the period is unchanging
and associated with some aspect of the
calendar, then the pattern is seasonal.
 Random Component (R)

 Erratic, unsystematic, ‘residual’

fluctuations
 Due to random variation or unforeseen
events
 Short duration and
nonrepeating

M T W T F
Forecasting Time Series Forecasts

Trend - long-term movement in data

Seasonality - short-term regular variations in data

Cycle – wavelike variations of more than one

year’s duration

Irregular variations - caused by unusual

circumstances - (like extremely unusual weather
conditions or political disputes).

Random variations - caused by chance ( natural

calamities)
3. Causal forecasting

The goal of causal forecasting model is to develop

the best statistical relationship between a
dependent variable and one or more independent
variables. The most common model approach used
in practice is regression analysis.
-The dependent variables represent the output or
outcome whose variation is being studied. The
independent variables represent inputs or causes, i.e.,
potential reasons for variation or, in the experimental
setting, the variable controlled by the experimenter.
Thank you